Loyalty Programs - ThoughtFocus · Customer loyalty fundamentals Loyalty Programs: A complex...

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A complex ecosystem for capturing customer loyalty Loyalty Programs

Transcript of Loyalty Programs - ThoughtFocus · Customer loyalty fundamentals Loyalty Programs: A complex...

Page 1: Loyalty Programs - ThoughtFocus · Customer loyalty fundamentals Loyalty Programs: A complex ecosystem for capturing customer loyalty “When a customer feels so strongly your company,

A complex ecosystem for capturing customer loyalty

ThoughtFocus 2016 | thoughtfocus.com

Loyalty Programs

Page 2: Loyalty Programs - ThoughtFocus · Customer loyalty fundamentals Loyalty Programs: A complex ecosystem for capturing customer loyalty “When a customer feels so strongly your company,

Customer loyalty fundamentals

Loyalty Programs: A complex ecosystem for capturing customer loyalty

“When a customer feels so strongly your company, service, or product best meets their relevant needs, your competition is virtually non-existent within consideration”.

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The most fundamental question every merchant; ranging from a mom-and-pop store to nationwide multi store retail chains ponders is how best to attract and keep new customers while and cross– and upselling existing ones.

Meaning, what should your business do to create a loyal customer base that will experience an inseparable affinity to your brand or the service they can get with any merchant. It all boils down to how well you create an unmatched experience for your customers in the process of interacting with it.

How is loyalty defined and how does your company and team go about creating this affinity among your client base? Industry experts defined loyalty as:

Page 3: Loyalty Programs - ThoughtFocus · Customer loyalty fundamentals Loyalty Programs: A complex ecosystem for capturing customer loyalty “When a customer feels so strongly your company,

Another definition states:

"A loyal customer is one who values the relationship with your business enough to make it a preferred supplier or the only supplier".

Both definitions indicate loyalty has a very high degree of emotional connection with a business, brand or service among its customer base.

This emotional loyalty is what every business strives to instill among its customers so they return and give back to the business. Building emotional loyalty is a complex process dependent on analysis of the customer’s behavioural patterns and narrowing down the parameters your current and prospective customers consider invaluable.

Enhancing the customer’s experience focused on the emotional value contributes directly towards increasing the switching cost from a customer’s perspective. If by switching to a new vendor, the customer tends to lose this emotional connection, then loyalty is retained irrespective of the common price differentials or routine benefits.

Another important aspect of building customer loyalty is developing knowledge relationships. This aspect involves gathering as much knowledge as possible about your customer based on their behavioural patterns and carving out a personalized marketing and promotion program to reward their loyalty.

Knowledge relationships yield satisfying results as customer engagements grow with the business, more data is gathered to tailor the promotions and increase the switching cost for the customer, and enhance the emotional loyalty.

Customer loyalty fundamentals

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Page 4: Loyalty Programs - ThoughtFocus · Customer loyalty fundamentals Loyalty Programs: A complex ecosystem for capturing customer loyalty “When a customer feels so strongly your company,

It has been a time tested debate whether a business’ development costs into a loyalty program yields measurable benefits or company bottom-line growth. Companies invest in loyalty programs as they perceive it as a win-win scenario and a source of sustainable competitive advantage.

Interesting fact: companies with big loyalty spend have seen up to a 10% EBITDA margin reduction, however, at the same time, companies spend five to 10 times more in capturing new customers compared to the spend on loyalty to retain existing customers. These data points are startling.

It goes to indicate that while loyalty programs are extremely prevalent, the connection between enduring loyalty and business growth is a complex ecosystem; yet not having a loyalty program in today’s environment will cast a negative image of the your business’ interest in building a lasting relationship with your existing and prospective customer base.

60% of global respondents in a Nielsen study said there was a loyalty program where they shopped and 80+% said they would visit the same retailers repeatedly

37% of retailers acknowledge retaining customers is the foremost

contributor to revenue growth

30% of the businesses cited in the survey said measuring loyalty

program results is a challenging and a daunting task

1.8 billion US loyalty programs as per Colloquy’s 2009 survey

with the average US household having memberships in at least 14 loyalty programs of different streams

Programs’ prevalence and effectiveness

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Page 5: Loyalty Programs - ThoughtFocus · Customer loyalty fundamentals Loyalty Programs: A complex ecosystem for capturing customer loyalty “When a customer feels so strongly your company,

01 Customer Retention

02 Foster Brand

Advocacy

$$$$ Increase

ROI

05 Win Back

Customers

06 Customer

Development

03 Identify

Unprofitable Customers

Insights Leverage data, create personal communication

04 Build

Relationships

07 Competitive Advantage

$$$$ Increase

Sales

08 Reduce

Advertising

Buy More Increase cross– and upsell by meeting new

needs

09 Acquire

New Customers

In some fashion or other, loyalty programs have been in place for the past few decades and have seen their ups and downs in their effectiveness.

In the recent past, there is a huge resurgence in loyalty programs as businesses are utilizing advanced technology solutions to evolve towards creating experiential rewards and building closer knowledge relationships with each customer and customer type.

Programs’ prevalence and effectiveness

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Leveraging technology for loyalty investments

100 0

% 46%

57% 72% 92%

87% 82%

76%

Asia-Pacific

Europe

Middle East—Africa

Latin America

North America

Loyalty programs influence

purchase behaviour

Likelihood of shopping to shop at a retailer offering a loyalty program

An effective loyalty program has to leverage the right mix of technology in providing the necessary tools and solutions for merchants and loyalty members. Neither an overly complex technology stack nor the shortage thereof is helpful in drawing the optimal results.

ThoughtFocus recommends a phased approach, wherein merchants should leverage a pre-built loyalty framework supporting basic models of loyalty such as a coalition program, partner based program, or a single brand program capable of supporting the additional custom business layers over it.

Focus Loyalty, from ThoughtFocus, is one such framework offering an extensible loyalty platform that is customizable and private label ready. Merchants with cautious IT budgets can leverage a hosted platform to begin with that operates as a stand-alone platform supporting standard ISO 8583 or XML based Point-of-Sales (POS) terminals to perform loyalty transactions.

As the program gains traction, a mobility component should be introduced for POS operations at merchant locations and a mobile app for loyalty members keep track of their engagement with the program.

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USA | India | Philippines

The introduction of the mobility component will then lay the foundation for introducing location based marketing for members, pushing offers and promotions based on behavioural analysis, event based offers, and so on.

In parallel, on the merchant side, a loyalty portal analogous to an eCommerce platform to allow online reward redemptions for their loyalty eliminates paper based redemption methods such as vouchers and coupons.

Leveraging technology for loyalty investments

Blueprint for action

Finding and working with a suitable consulting and solutions partner that can lay out a technology roadmap that takes the loyalty investment on a smooth ramp will create a very positive return when your business looks to implement and capitalize on your investment towards loyalty programs.

Further enhancements such as integration with your POS infrastructure and card processing solution will open doors for Omni-channel initiatives to bundle shopping and loyalty program interaction for a more engaging customer experience.

ThoughtFocus The company is a US based, privately held consulting, software and product engineering, K/BPO outsourcing firm whose global team of over 1,300 associates consistently helps clients achieve their most critical business objectives. Local offices, supported by start-of-the-art development and outsourcing centers in India and the Philippines, allows the company to balance delivery risk and cost for clients for over a decade.

ThoughtFocus is able to bring to our engagements intellectual capital, in the form of technical and process frameworks, target operating models, software and infrastructure to provide acceleration of critical programs, thereby reducing cost and delivery risk. Our goal and aim is to always find a way to give you a competitive advantage in your markets.

ThoughtFocus is majority employee held and has taken a minority investment from Blackstone Group via its Innovation Fund. Blackstone also holds a Board seat.